autoenrolment Qs & As (44)
automatic enrolment in a nutshell
by
Roderick Ramage, solicitor, www.law-office.co.uk
first
posted on this site on 31 December 2013
DISCLAIMER
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does
not accept any responsibility for anything that any person does or does not do
as a result of reading it.
Automatic
enrolment in a nutshell.
From 1 April 2014 all employers with
250 of more in their PAYE scheme will have reached their staging date and by
July 2014 it will be 50 or more.
AE applies to “jobholders”, who are
employees and other workers aged 16 and over but under 75 with qualifying
earnings, “QE”, which means the band of earnings from £5,668 to £41,450 pa (expected
to be £5,772 to £41,865 for 2014/15).
Jobholders aged 22 and over and not
over state pension age with earnings over £9,440 pa (expected to be £10,000 for
2014/15) must be AE’d. Jobholders outside that age band may enrol
voluntarily, but, if their earnings are below the QE band, the employer need
not pay contributions.
An AE scheme must satisfy the “quality
requirement”, which, for money purchase (or defined contributions), will
require total contributions, from October 2018, when AE will be fully in force,
of 8% of pay, of which the employer must pay a minimum of 3%: from October 2017
the rates will be Er 2% and total 5%, and until then
they are Er 1% and total 2%. There are alternative criteria, both DC and
DB.
Qs
& As
Here is a selection of questions asked
by clients and outlines of answers.
Q1 How do I know when AE applies to my business?
Your “staging date” is when AE duties
apply to you. You can find a table of
the dates in the Employers’ Duties (Implementation) Regulations 2010 and on
numerous websites. Note that the numbers
in the left column of the table in the regulations refer not the number of your
employees but to the number in your PAYE scheme, so a small employer’s staging
date might be earlier than expected.
Q2 If an employee’s pay fluctuates and
falls below the trigger amount does he or she fall out of AE?
No.
Once enrolled, the effect on fluctuations in pay is on your employee’s and
your contributions, which, unless you adopt one of the alternatives, are based
on the employee’s QE in each pay review period, so there may be weeks or months
in which these employees pay no contributions.
Q3 How much must I pay? May I and my
employees pay more?
The minimum rates are in the nutshell
summary above. There is nothing to
prevent you from paying more. Your
employees may pay more voluntarily, but, if you deduct more from an employee’s
pay than the minimum, you could be liable for a claim that the excess is an
unlawful deduction from wages, unless you have the employee’s written consent. One solution could be to have two sections in
your AE scheme, one to provide the minimum to comply with the AE requirement
and the other, non-AE, for employees who wish to pay more and for whom you wish to pay more,
to avoid the risk that, if your contributions to an AE scheme equal or exceed
the minimum total rate, the employees would not be compelled to pay
anything.
Q4 I use agency workers. Who must AE them?
You, if you pay them and they are in
your PAYE scheme, but the agency, if they are paid by the agency supplying
their services.
Q5 A lot of my employees are part time or
have zero hours. Must I AE them?
Yes.
AE does not depend on hours worked but on pay. If an employee or other worker at least 22
years old but not over state pension age has earnings at the rate of over
£9,440 pa in the relevant “pay review period”, he or she must be AE’d.
Q6 Must I AE employees who have another
job?
Yes.
Each employer is under a separate obligation for its own employees. It makes no difference to your obligation
that an employee also works for one or more other people or is or is not
already a member of an AE scheme.
Q7 Must I AE my company’s directors?
If the director is simply an office
holder, AE does not apply, but it does apply if he or she is also employed by
the company. If you were the director and the company has no other employees,
AE would not apply to you.
Q8 Most of my employees belong to my
company’s existing pension scheme. Does
AE apply to them?
No, if your existing scheme is a
“qualifying scheme” and Yes, if it is not. A qualifying scheme is a pension
scheme which (a) is an occupational or personal pension scheme, (b) is
registered with HMRC and (c) satisfies the “quality test” (see the nutshell
summary above).
Q9 Does AE change my contracts of
employment?
No.
The AE obligation applies whatever your employment contracts say. Your employees remain entitled to any contractual
pension rights that are better than the AE rights. The Employment Rights Act 1996 s1 entitles employees to particulars of pensions, so
existing statements and contracts will need to be altered for AE. Most employers need two or three sets of
pension clauses: (a) for new joiners; (b) for existing employees who are not
members of any pension scheme; and (c) for existing employees, who are members
of a qualifying scheme and whose terms might be altered but only to take effect
if and when the scheme ceases to be a qualifying scheme or the employee ceases
to be a member of it.
Q10 Is opting out the only way for an
employee to leave my AE scheme?
No.
If an employee misses the date for opting out or later decides to leave
the scheme, there is an alternative. He
or she can cease to be an active member in accordance with the scheme’s
rules. Section 160 of the Pension
Schemes Act 1993 remains in force, so any terms in an employee’s contract
requiring him or her to be a member of a pension scheme is void. Therefore employees can still leave the
scheme. Automatic re-enrolment applies
in both cases.
Q11 Can I avoid monitoring employees age
and pay for AE by simply enrolling everybody?
This is sometime talked of as
“contractual enrolment” and, if it works, reduces the monitoring you must
do. It cannot be guaranteed to work
because of the s160 restriction in Q10, so if any employee decides not to stay in the scheme,
you will have to monitor him or her for AE.
One solution, but expensive for you, would be to enrol all employees
into an AE scheme with no employees’ contributions.
Q12 What has happened to stakeholder
schemes?
The need to provide a stakeholder
scheme ceased on 1 October 2012, but existing schemes continue, unless your employees
withdraw their requests for the deduction of their contributions from pay. Your stakeholder scheme might be suitable for
AE – even if your insurer or consultant wants to provide a new scheme.
END
copyright Roderick Ramage
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